The Relationship between non-Performing Loans and Selected EU Members Banks Profitabilities

Huseyin Cetin

Abstract—Between the time period of 2005-2015, it has been found that non-performing loans and return on assets is negatively correlated for many EU members banks. Panel data OLS regression analysis was applied. Between the time period of 2005-2015, it has been found that non-performing loans had significant negative impact on return on asset ratios for 10 EU members banks panel data. Bayesian impulse response analysis was applied to panel data of 10 countries. According to analysis, between 2005-2015, one standard deviation positive shock of non-performing loans diminished return on asset ratios. It can be indicated that Bayesian impulse response analysis has similar result with Panel OLS regression. The research results support bad management hypothesis. In addition, Johansen Fisher Panel Cointegration test was used and it has been found that there is long term relationship between some EU members banks NPL and ROA.